Some Hedge Funds Only Seem Like Pirates—This One Actually Stole a Ship

Let's say you own some debt from Argentina. The country defaults. But you still want to be paid in full. The solution? Hold one of their vessels for ransom, of course.

argentine-libertad-100412.jpg

Reuters

Wall Street cherishes the idea that it is far more important than any government. That's why we aren't surprised that a hedge fund has seized an Argentine naval vessel to recoup past loans.

A subsidiary of Elliott Capital Management seized the Libertad in a Ghanian port on Sept. 2, after it gained an injunction from a local court to hold the ship and its 200 crew members there. The fund is attempting to collect money it lost when Argentina restructured its debt after a $100 billion default in 2001, cutting payouts down to 30 cents on the dollar. The boat is a 100-meter long tall sailing ship, built in the 1950s as a training vessel for the Argentine nation and currently on a graduation tour for Naval cadets. It is valued at about  $10 to $15 million.

Elliott, led by billionaire founder Paul Singer, is one of a few lenders that have rejected Argentina's restructuring, demanding full payment and pursuing the matter through US and international legal venues, though the legal implications are far from cut-and-dried. The fund buys distressed bonds from financially troubled countries, like Argentina in 2001, and then attempts to collect in full when the nation recovers economically. Elliott popularized this strategy in the 1990s when it gained 400% returns on Peruvian government debt.

Apparently, the fund had been carefully watching the ship's course, waiting for an opportunity to stake a claim on it. If the country wants it back, it will have to pay a bond to the Ghanian court, which Elliott would reportedly cash in.

So-called "vulture" funds are already taking advantage of the opportunities provided by the European financial crisis, so today's action might be a preview of a not-to-distant future where financiers chase government assets--planes, ships, and in one unfortunate case, foreign aid-- around the globe, trying to shakedown dead-beat governments.

Presented by

Tim Fernholz is a reporter at Quartz.

The Man Who Owns 40,000 Video Games

A short documentary about an Austrian gamer with an uncommon obsession

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register.

blog comments powered by Disqus

Video

The 86-Year-Old Farmer Who Won't Quit

A filmmaker returns to his hometown to profile the patriarch of a family farm

Video

Riding Unicycles in a Cave

"If you fall down and break your leg, there's no way out."

Video

Carrot: A Pitch-Perfect Satire of Tech

"It's not just a vegetable. It's what a vegetable should be."

Video

An Ingenious 360-Degree Time-Lapse

Watch the world become a cartoonishly small playground

Video

The Benefits of Living Alone on a Mountain

"You really have to love solitary time by yourself."

More in Business

Just In